Euro pressured by strong US data

Solid economic data out of the US continues to support the US dollar at the expense of the Euro and last Friday’s retail sales figures backed up this claim and added to speculation that the US Federal Reserve will soon take moves to reduce their stimulus program which was introduced to tackle the effects of the coronavirus.

The retail sales numbers unexpectedly increased in June as demand for goods remained strong and showed the US economy is powering ahead in the second quarter which is helping to lift inflation. The figures hit the market at 0.6% against analysts expectations for a figure of 0.4% and well above last month’s reading of  -1.7%.

The dollar is also benefiting from safe-haven flows which is being driven by covid and the highly transmissible Delta variant which is spreading like wildfire through Asia while Australia, and Japan have seen lockdowns and other forms of restrictions introduced to curtail the spread. This is leading to a surge in demand for US treasury bonds as a safe haven which is proving to be a key driver of the US dollar.

This Thursday is shaping up to be a big day for the Euro when the European Central Bank will release the results from their latest policy meeting. Although the ECB is expected to leave its current monetary policy settings unchanged, ECB president Christine Lagarde is expected to tell investors to prepare for new guidance on monetary stimulus and signal that fresh measures are to be introduced next year to support the Eurozone economy after the current emergency bond program ends. If these predictions are true it is likely to weigh on the Euro